Stream in receivership; questions arise about viability of high-frequency wireless

The long-term viability of high-frequency and LMCS-type services is in serious doubt now that an important 38 GHz spectrum holder has been forced into receivership by one of its financial backers (RoW Update, Feb. 26/02). On February 25, GE Capital Canada pulled the plug on further financial support for Stream Intelligent Networks Corp., and went to court to force the Toronto-based company into receivership. According to court documents obtained by Report on Wireless, Stream owes GE Capital approximately $13 million. The company has been operating with a monthly deficit of about $400,000 and would need a cash infusion of between $2 and $2.5 million to continue operations. GE Capital writes in its affidavit that Stream had been in a financially precarious position for the past 12 months and that it didn’t foresee an alternative to receive at least some return on its investment. Compounding difficulties for the high-frequency fixed wireless industry, WNI Networks Inc. says it won’t be able to meet the in-service deadline for deploying services using its spectrum. WNI, formerly known as Wispra Networks, won a handful of licences in the 24 GHz frequency range in Canada’s first spectrum auction in 1999 (RoW, Nov. 29/99). Last fall, the company filed for relief from the spectrum usage demonstration date of May 25, 2003. It requested an extension to the end of the 10-year licence term, similar to licence conditions set for LMDS licensees in the United States (see story on pages 3 and 6 for more information on WNI). Industry Canada recognizes the difficult state of the market and granted WNI an extension, albeit only until July 1, 2005. "The department also recognizes, however, that extenuating circumstances outside the control of the licensee may arise that would not allow them to establish service in the time frame specified," it writes in its December 14, 2001 letter. Service to continue at Stream For the time being, Stream is still operating and providing service. About two weeks ago, the company’s employees were locked out of its building. It had some of its fibre turned off by 360Networks Inc., another of the company’s creditors, which also happens to be in creditor protection. (For more information on 360Networks, see the July 3/01 edition of RoW affiliate publication, Network Letter). Interim receiver PricewaterhouseCoopers (PwC) gained access to the building and is now running the company until discussions are completed as to the sale of the assets. PwC has only just received the file and won’t begin to wade through the list of assets and all of the other agreements until this week. Greg Prince, VP financial advisory services at PwC, tells Report on Wireless that within the next couple of weeks he’ll be in a better position to present an inventory of assets for sale. While Prince can’t speak specifically to the Stream case, he does say that in the vast majority of the cases these types of competitive providers simply run out of money. In the late 1990s and into the year 2000, these companies paid a lot of money for infrastructure equipment to build out their networks, explains Prince. "So you’ve got these humongous obligations and you just don’t have enough customers to cover them," he adds. According to documents filed with the Ontario Superior Court of Justice, GE Capital has first dibs on nearly all assets to be liquidated. Stipulations contained in a July 8, 1999 loan agreement between the two parties state that GE Capital was granted a security interest in Stream’s inventory, equipment, accounts, intellectual property, contractual rights, and other proceeds. "Under the Borrower Security Agreement, GE Capital was granted a first charge on substantially all of the assets, property and undertakings of Stream, subject to only certain encumbrances permitted by the Loan Agreement," court documents state. Viability of LMCS-type services in jeopardy While Stream is just the latest to join a group of companies that haven’t been able to follow through on business plans for offering high-bandwidth digital services to corporate and government customers, initially it seemed to have the right formula for success. It won the lion’s share of airwaves in an auction a little more than two years ago (RoW, Nov. 29/99). The company fought it out against competitors such as AT&T Canada, the now-defunct Norigen Communications, Wispra Networks, and others, and ultimately came out on top (RoW, Nov. 15/99). Stream secured at least one licence in all of the 59 serving areas (RoW, Nov. 29/99). As well as being a surprise winner in the auction, Stream didn’t waste any time launching services. It was first to market with its services less than six months after winning the licences (RoW, May 16/00) using radios from Triton Network Systems of Orlando FL and other equipment from Giganet of Tel Aviv, Israel. Stream established a point-to-point link between two large office towers in downtown Toronto. At that time, company executives told Report on Wireless that the company planned to roll out 300 fibre and wireless POPs in four Canadian cities by the end of 2000. Cities identified for deployment were Vancouver, Calgary, Kitchener-Waterloo-Cambridge, and Ottawa-Kanata. Stream seemed poised for success, but ultimately fell victim to the capital crunch and ran out of money, surprising some analysts. Mark Quigley, senior research director at the Yankee Group in Canada, thought if there was going to be a survivor, Stream would have been it. "They hadn’t gone out and overextended themselves (and) they seemed content to focus as a niche player for the time being," he tells RoW. "I thought they were going to see some kind of success." Earlier this year, Industry Canada revoked the 28 GHz spectrum licences of Maxlink Communications, after 13 months of trying to find an appropriate buyer (RoW, Feb. 5/02). Last fall, Norigen Communications filed for bankruptcy after one of its capital providers, Chase Manhattan Bank, pulled the plug on future cash infusions (RoW, Sept. 18/01). PwC was named the receiver in that case as well. While it was initially believed that there would be a quick end to the Norigen fire sale, that scenario has failed to materialize. According to PwC, non-telecom equipment was scooped up rather quickly, but bids for the telecom infrastructure haven’t really materialized. "(There’s been) lots of interest in the non-telecom assets," Prince says. "So we did great on the tables and chairs and computers, but we didn’t do very well in the telecom side." GE Capital notes in court documents that several parties have already expressed interest in acquiring some of Stream’s assets. However, in those documents, the company didn’t provide specifics. That may be the case, but it is hard to believe that anything more than office supplies and furniture will be picked up, since Norigen’s telecommunications assets, including its spectrum licences, are still unwanted. Combine that with the revocation of Maxlink Communications’ spectrum licences, and it may be quite difficult to unload the airwaves. Industry Canada already studying future use The department recognizes that high-frequency wireless service providers are facing some challenges and is already reviewing the 28 GHz band as part of a consultation and review of spectrum in the 3 GHz to 30 GHz range (RoW, Feb. 5/02). Industry Canada officials told RoW last month that the department will wait for the results of the review before making any decisions about that band. Mike Connolly, senior director spectrum management operations at the department, has, however, ruled out any review of the 24GHz and 38 GHz bands, saying that the licences have been awarded and the marketplace that will decide their future. "They will ultimately find their way to someone who will or will not exploit those licences," he says.

Stream in receivership; questions arise about viability of high-frequency wireless

News | March 5, 2002

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